India's lockdown to curb demand for Australian coal

Economic uncertainty over regional lockdowns imposed in parts of India following a fresh Covid-19 outbreak is encouraging Indian consumers to withhold bids for Australian high-ash coal. This is preventing Australian coal prices from rising during a looming Chinese coal shortage that has driven up seaborne prices.

Parts of India have imposed lockdowns lasting for 7-15 days after a surge in Covid-19 infections. Most industries are expected to remain operational but most market participants expect activity to decelerate, which could weigh on power demand and boost coal inventories. The Australian NAR 5,500 kcal/kg market was last assessed by Argus at $56.90/t fob Newcastle on 16 April, down by $1.44/t on the week. Similar-quality Indonesian GAR 5,800 kcal/kg (NAR 5,500 kcal/kg) coal was assessed on the same day at $77.86/t fob Kalimantan, up by $1.17/t from the previous week, driven largely by Chinese enquiries for summer restocking.

India has replaced China as a key market for Australian NAR 5,500 kcal/kg coal after China last year imposed an informal ban on Australian material. A recent winter coal shortage in China drove up prices of non-Australian coal on aggressive Chinese bids, significantly widening the arbitrage window of Australian coal into markets such as India, Myanmar (Burma), Qatar, Thailand and Taiwan. Australian NAR 5,500 kcal/kg prices were lifted out of the doldrums in late 2020 as an indirect result of Chinese shortages after informal Chinese restrictions dampened prices in April .

But Australian NAR 5,500 kcal/kg coal prices are unlikely to gain significantly from another potential coal shortage in China as the peak summer demand season approaches, unless more Indian consumers return to the market. India imported 4.99mn t of Australian coal in 2020, up from 4.1mn t a year earlier , even as India's overall seaborne receipts fell against the previous year from the impact of the pandemic.

Alternative markets Limited demand from other markets such as Vietnam, Taiwan and South Korea could offer some support for Australian coal prices and cushion the impact of reduced Indian demand. But the absence of Indian consumers could offer greater leverage for importers from other markets to push for lower prices of Australian cargoes.

Taiwan's worst drought in 56 years is supporting the island's demand for seaborne coal, although much of the recent interest is for Russian material rather than Australian cargoes because of lower freight rates from the shorter distances . Taiwan received 1.31mn t of Russian coal in March, nearly double from March 2020 and up sharply from February this year, customs data show. Receipts of Australian material in March were relatively stable but could change if aggressive Chinese bids drive up Russian spot prices further. Russian NAR 5,500 kcal/kg coal prices rose by $3.69/t on the week to $80.79/t fob Vostochny on 16 April, according to Argus assessments, with some Russian suppliers offering prompt cargoes of this coal at $100/t on a cfr south China basis last week to take advantage of Chinese shortages.

Vietnam's coal imports in March rebounded, with Indonesian coal accounting for the bulk of the increase . Vietnam imported 1.32mn t of Australian coal in March, a decline from 1.56mn t a year earlier. The rise in spot prices of Indonesian coal could push some Vietnamese demand to switch to Australian material.

By Kelvin Leong

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